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Task 1. Before you read, look at the title and subtitle. What theory is the article questioning?

Management thinkers have long associated a strong corporate culture – the beliefs, goals and values that guide the behavior of a firm’s employees – with superior long-term performance. The theory is that strong cultures can help workers march to the same drummer; create high level of employee loyalty and motivation; and provide the company with structure and controls.

John Kotter and James Heskett, both professors at Harvard Business School, report on their four-year study to examine the link between corporate culture and economic performance. To do this, the authors calculated (from survey responses) ‘culture-strength indices’ for over 200 big American firms. Their analysis did show a positive correlation between strong cultures and long-term economic success, but it was a weaker association than most management theorists would have expected. Strong-cultured firms seemed almost as likely to perform poorly as their week-cultured rivals.

Strong cultures, even those which once made a company successful, can also be an obstacle to change. Too strong a culture can lead to corporate arrogance and insularity. So what makes a corporate culture a competitive weapon, rather than a liability?

To find out, the researchers dug deeper. They selected two small groups of strong-cultured companies. The first group comprised high-performing firms whose net profits had, on average, increased by three times as much over an 11-year period as those in the second group. What is it about the cultures of the high-performing companies that makes them successful? The authors’ theory is that firms whose cultures seem consistently to produce long-term economic success share one fundamental characteristic: their managers do not let the short-term interests override everything else, but are about all of the company’s shareholders. Only when managers care about the legitimate interests of shareholders do they strive to perform well economically over time, and in a competitive industry that is only possible when they take care of their customers, and in a competitive labour market that is only possible when they take care of those who serve customers – employees.

To test their idea, John Kotter and James Heskett asked the investment analysts to rate a larger number of firms by how much each valued customers, shareholders and employees. Managers and employees at the companies were also interviewed; their views closely matched those of the analysis. Of these, 12 firms were identified whose cultures stressed all of the three big corporate constituencies – customers, employees and shareholders. A further 20 were identified which did precisely the opposite (whose managers, according to the analysts, cared mostly about themselves).

Over the 11-year period, Messrs Kotter and Heskett found that the 12 firms in the first group increased their revenues, on average, by four times as much as the 20 companies in the second group; their workforces expanded by eight times as much; and their share prices increased by 12 times as much (by 901%, against 74% for the second group). Perhaps most impressively, however, the net profits of the firms in the first group soared by an average of 756% during the period, compared with an average increase of just 1% for companies in the second group.

 

Task 2. The article focuses on a four-year research study undertaken by two Harvard Business School professors, John Kotter and James Heskett. Read it carefully again and complete the research chart:




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Text 2. The caring company | Corporate Culture and Economic Performance

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